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Helen Johnson gave a welcoming smile to the group of older men and women who had assembled at the senior center in the Maryland Eastern Shore town of Snow Hill on a recent evening. All of them were caregivers for spouses or parents with debilitating illnesses.

“We’re very concerned about you,” began Johnson, 74, who organizes support programs for a nonprofit agency serving the elderly. “You spend so much time tending to your loved ones, you don’t have time for your self.” But Johnson’s comforting message masked worries of her own. There was the gnawing pain in her arthritic knee, which gets so bad by late afternoon that she can’t stand up for more than a few minutes at a time. There was her dread of the drive home after dark, which has become difficult as her eyesight has weakened. And perhaps most wearying, there was the knowledge that despite her dislike of working evening hours, she had no alternative.

Nearly a decade after reaching retirement age and qualifying for Medicare, Johnson cannot afford to give up her job. Even with the paycheck it brings, her income is only a few notches above the federal poverty level. Her situation is so common that it presents an uncomfortable — and not always acknowledged — challenge for policymakers seeking to rein in spending on Medicare: Nearly half of Medicare recipients have incomes at or below 200 percent of poverty — $21,780 for an individual, $29,420 for a couple.

At a time of growing concern about federal deficits and the national debt, few dispute the need to take on Medicare. The health insurance program for seniors and others with certain disabilities already accounts for 15 percent of the federal budget — behind only Social Security and defense spending. And that share is expected to rise as health-care costs continue their upward spiral and more baby boomers retire, threatening the long-run solvency of Medicare.

Yet several of the most prominent solutions under discussion largely derive their savings by shifting a greater share of the cost onto beneficiaries. The Republican plan sponsored by Rep. Paul Ryan (R-Wis.) and passed by the House of

Representatives in April, for instance, would substantially reduce federal spending on Medicare by capping the government’s contribution to the program and transforming it into a system of “premium supports” granted to seniors to partially subsidize their purchase of private insurance plans, with seniors responsible for any additional costs. This would more than double out-of-pocket health-care spending by a typical senior to $12,500 per year, according to estimates by the Congressional Budget Office.

And the ability of many seniors to shoulder that burden appears questionable. Only 5 percent of Medicare beneficiaries have incomes of $80,000 or above, a figure that includes any income from a spouse. As for the 47 percent who are at or close to poverty, on average they are already spending nearly a fourth of their budgets on health care, according to an analysis of Medicare survey data by the Kaiser Family Foundation.

“There’s this impression that there’s a great deal of wealth among the Medicare population, this image of wealthy seniors playing golf and enjoying their retirement years,” said Tricia Neuman, director of the Kaiser Family Foundation’s Medicare Policy Project. “But while some are lucky to do so, many are living on a fixed income, struggling to make ends meet . . . with really limited capacity to absorb rising costs.”

Back to work Johnson, a single woman with a master’s degree in education who spent a lifetime working for social service agencies, is in one of the toughest categories. Virtually her only retirement income is a monthly Social Security check of roughly $1,450. If she had to rely on that alone, her income would be just above 150 percent of poverty — too low to cover her bills but too high to qualify her for federal and other assistance programs that could offset her Medicare premiums and other health costs under either current law or the Ryan alternative. That plan also offers extra help only to seniors at or below 150 percent of poverty. (The Ryan plan would not apply to Johnson because it exempts current seniors, taking effect only as Americans 55 and younger reach retirement age.)

Johnson said she started feeling the pinch within a few years of her retirement in 2000. Her only son, beset with troubles of his own, was not in a position to help.

She said she started by eliminating the little luxuries: “no more dinners out with the girls; no more new clothes.”

Then she dipped into her savings, all but depleting the roughly $30,000 in her 401(k) account to cover big-ticket expenses such as a forest green Toyota Camry to replace her old car and a new water pump and windows for her house, a four-bedroom bungalow her father built virtually by hand in the mid-1940s. She also took out a home equity loan to pay for a new roof, a debt on which she still owes $7,000.

And she never completely stopped working, initially putting in a day a week for her last full-time employer, a nonprofit agency based in Salisbury, Md., called Maintaining Active Citizens, or MAC.

Yet even bills that seemed manageable when she first retired started ballooning: $75 a month for a phone and DSL connection, where once she spent $34; $102 for a light bill that used to be closer to $50. Meanwhile, nearly a fifth of her Social Security check was needed for her Medicare and supplemental coverage premiums.

Four years ago, Johnson concluded that she simply had to work more hours.

The three-day-a week-job coordinating MAC's caregiver project has boosted her income by about $1,000 per month.

“It's helped me tremendously,” she said. “There’s not as much pressure to keep robbing Peter to pay Paul — you know, send a bill and pay only part of it, keep track of the gray periods when you don’t have to pay in full yet.”

But the respite feels precarious. Funding for the caregiver project expired at the end of last month. MAC’s executive director, Margaret Bradford, thinks she can patch together enough resources to continue employing Johnson while she applies for a new grant, but there’s no guarantee it will be approved.

And the job is of no use if Johnson can’t stay healthy enough to work. After years of bronchial trouble, she has developed chronic obstructive pulmonary disease, which can leave her breathless and tired. The medication she takes to control it has also caused her to gain substantial weight, exacerbating her arthritis.

‘I don’t want to be here’

But Johnson, a farmer’s daughter who put herself through the University of Maryland one night class at a time, isn’t ready to give up.The stereo in the exercise room at the Peninsula Regional Medical Center in Salisbury was playing Fleetwood Mac: “Don’t stop thinking about tomorrow. Don’t stop, it’ll soon be here.”

Beads of sweat moistened Johnson’s brow as she strode on a treadmill set to 0.9 mph.

A nurse monitored Johnson’s heart rate and blood oxygen levels to ensure she was not overdoing it. The three-day-a-week pulmonary rehabilitation program is designed to teach patients strengthening exercises in a controlled setting.

This was Johnson’s eighth session, and she was not precisely enjoying it.

“My hands are going numb and my knee hurts,” she said, huffing slightly. “To be honest, I don’t want to be here. . . . But I see this as allowing me to stay mobile. We’re trying to find the solution to help me keep going.”And if they fail?

“I face up to the fact that it might get a whole lot worse,” she said. “But I just pray and hope for the best. You can’t worry too far ahead because you’ll make yourself sick. So I’m just enjoying what I have and take things one day at a time.”

Historical ProjectedMedian out-of-pocket spending as a share of income is projected to exceed 25 percent in 2020.

With overall health care costs rising faster than income for Medicare beneficiaries, median out-of-pocket health spending as a share of beneficiaries’ income is projected to increase in the future. If previous trends continue, median out-of-pocket spending is projected to be 19 percent of income in 2011; by 2020, median out-of-pocket spending is projected to reach 26 percent of income. (For information about projection methodology, see below.)

The burden of health care costs in the future is likely to continue being considerably greater for certain subgroups of the Medicare population – particularly those with low incomes who are not covered by Medicaid, the oldest old, and beneficiaries who have significant medical needs that are not fully met by Medicare-covered benefits.

ConclusionWith incomes rising more slowly than health care costs, out-of-pocket health spending is consuming an increasing share of Medicare beneficiaries’ income, despite the important coverage provided by Medicare and supplemental insurance, and the introduction of the Medicare Part D prescription drug benefit in 2006.

According to prior research, seniors consistently spend a larger share of their income out of pocket on health care than younger people. The financial burden of out-of-pocket health spending is much larger for some segments of the Medicare population, including the oldest old, those in relatively poor health, and those with incomes below 200 percent of poverty.

Many beneficiaries have supplemental insurance to help fill in the gaps, but premiums for these policies are rising, and the coverage offered by some sources is eroding. Furthermore, less than half of all Medicare beneficiaries with incomes below twice the poverty level have Medicaid to supplement Medicare.

As health costs continue to rise, average out-of-pocket costs do so as well, requiring people on Medicare to put even more ‘skin in the game’ to pay for their health expenses.

As policymakers consider options to rein in federal spending, including proposals that would increase costs for some or all people on Medicare, this analysis raises important questions about how much – and how much more – of their incomes Medicare beneficiaries can reasonably be expected to spend on their health care.

MethodologyThis policy brief is an update of the 2009 study “Revisiting ‘Skin in the Game’ Among Medicare Beneficiaries” prepared by Tricia Neuman, Juliette Cubanski, and Anthony Damico. The findings are based on an analysis of the Medicare Current Beneficiary Survey (MCBS) Cost and Use Files, 1997-2006. The analysis includes Medicare beneficiaries of all ages (including the under-65 disabled), and those residing in long-term care settings.

Out-of-pocket spending includes all personal expenditures for medical and long-term care services, including premiums for Medicare and supplemental insurance. Income includes all sources, such as pension, Social Security, and retirement benefits, reported on a pre-tax basis. To measure the financial burden of health spending, we computed for each individual a ratio of out-of-pocket spending to income, and computed both the mean and median for the entire group.

To project median out-of-pocket spending as a share of income between 2007 and 2020, we applied growth rates to the income and out-of-pocket spending for each Medicare beneficiary in the 2006 MCBS data. The growth rate used for out-of-pocket spending was based on average annual growth of median out-of-pocket spending between 1997 and 2006 (6.5 percent per year); the growth rate used for incomes was based on the average annual growth of median income between 1997 and 2006 (2.8 percent per year). Applying these growth rates to each individual’s out-of-pocket spending and income, we computed a ratio of out-of-pocket spending to income for each individual in each year, and computed the median among all Medicare beneficiaries in each year. Projections do not take into account the effects of health reform (including closing the Medicare Part D coverage gap), changes in the sustainable growth rate (SGR), or the possibility that income and out-of-pocket health care costs could grow more slowly or quickly in future years than in the past.